A Quick Start to Building Your Own Business

Starting a business is becoming a more attractive prospect, not just to the working population, but to students and graduates too. We live in such a technologically advanced world we can run a small business from our homes, making it incredibly cost effective, plus no more worrying about renting expensive office space.

So if you’re interested in starting your own company, here’s a quick guide to get you up and running.

Register with HMRC

You’ll need to tell HMRC that you’re starting a business. You can decide to go either sole trader or limited company, but of course this depends on how you’re going to operate.

Sole Trader

You’ll be the exclusive owner of the business, entitled to keep all profits after tax has been paid, but you’re liable for all losses. This option gives you ease and flexibility, but no protection. To become a sole trader, all you have to do is register with HMRC as self-employed within three months of starting your business.

You’ll pay two types of national insurance contribution (NIC). One rate is a set amount charged weekly, the other is based on a percentage of your profits over a certain amount. You also need to pay income tax through a Self-Assessment at the usual rate charged for personal income.

Limited Company

Operating as a limited company takes more work, but often has more benefits, including better protection. This means that if legal challenges arise, the business is sued rather than you personally, unlike a sole trader who is 100% legally and financially responsible for the business.

You can split your income between company salary and dividends as a limited company, which makes this option more tax efficient. You’ll pay Class 1 NICs and income tax on your salary in the same way you would if you were employed.

You will also pay dividend tax on dividends that exceed the allowance. You’ll pay Corporation Tax on the company’s profit. You can offset business expenses against earnings to reduce profits (and tax as a result).

You’re not automatically registered for VAT and won’t need to register to pay it unless your annual turnover exceeds a certain amount, although it can be beneficial to register for VAT early.

At least one shareholder. This can also be the director and there’s no limit on the number of shareholders a company can have.

An agreement to create the company from all the initial shareholders. This is known as “memorandum of capital”.

Details of the company’s shares and rights attached to them. This is called a “statement of capital”.

A written set of rules about how the company is run. These are known as “articles of association”.

If you have more than one shareholder you should consider a shareholders agreement setting out how, after registering with Companies House, you’ll need to register for Corporation Tax within 3 months of officially starting a business. If you register late you will get penalised.

Branding and Marketing

The key part of any business is differentiating yourself from your competitors. To do this, you’ll need an awesome brand to work with.

Get a designer on board and create a logo, also a developer to create a great website. While technology means it’s much easier to run a business from your couch, it also means you can’t get away with a shoddy and unprofessional website, otherwise no one will take you seriously.

Even if you’re operating as a sole trader, a website is very important as it looks more professional.

You’ll also need to set up some social media accounts. As you’re just setting up, you’ll only need the key players for now: Facebook, Twitter and possibly Instagram if you’ve got a very visual product or service. It’s a quick and easy way of marketing your business and shouldn’t be overlooked.

Business cards will be important too. They look professional, they usually don’t cost that much, and they’re a great way of giving out your contact details when networking opportunities arise.

Keeping Your Accounts in Check

Whether you are operating as a limited company or sole trade, when you start working for yourself, keeping track of your accounts (that’s your income and expenses) becomes a necessity and don’t forget your small business accountants. As your business grows, you’ll be able to get some help – but there are a few rules you need to follow when you’re just starting out.

Anyone can be investigated by HMRC, so you need to be transparent. If you’ve done anything risky and not owned up, you could face anything from hefty fines to jail time.

Being transparent is also better for your business as forces you into the habit of keeping track of all the money coming in and out. This can be helpful for business strategies or reducing the amount of tax you need to pay.

Regularly updating your records is a must. Try and set aside a certain time each week to do your books. Getting into a routine will help you be consistent and not fall behind (which can be an expensive nightmare).

Educate yourself on finance. Looking after your books isn’t just about keeping track of your cash flow. There are many ways of analysing your income and expenses to find ways to cut down costs and earn more money. There’s a lot support available online if you need help with this.

Put money aside every month. While it’s great that you’re making money, it’s important not to forget that there will be tax to pay. It’s best to budget for taxes as you earn, so you’re not surprised when you get your tax bill at the end of the year. Think about putting money aside each time you earn or get a small business accountants help.

If you’re working as a contractor or freelancer, it’s important to keep on top of your invoices: encourage your clients to pay as soon as they receive your invoices, or agree short payment terms.

And that’s all you need to get up and running! Of course, there are other tiny details, plans and strategies when it comes to setup and operations, but you can read about those in depth in our free downloadable guide or talk to one of our small business accountants.

Written byJonathan London

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